Mild winter : an unexpected gift for Belgian households
The mild winter reduced the belgian' households' gas bills by up to 210€. Mild temperatures were observed between December 2013 and March 2014 . As a consequence, Sia Partners estimates that the households' gas consumption during this period decreased by almost 15% compared to the previous winter. The benefit for the households would reach about 210€ compared to the energy bill for the same period last year.
The gas bath-curve
In Belgium, about 2.600.000 households use gas on a daily basis for heating and sanitary purposes . Due to the change of temperature in function of the seasons, the gas consumption through the year follows a bath-curve, as illustrated on the right. On average, the December to March months represent about 65% of the yearly gas consumption. This proportion is based on historical weather condition, considering a daily consumption between 0,04% and 0,6% of the total yearly consumption .
Distribution System Operators (DSO) measure and communicate consumption indexes at least once a year to Suppliers (more when e.g. the consumer moves or switches from energy Supplier) . But those data give a static view on the total consumption between two dates, without mentioning when it was really consumed. The bath-curve is important for both Distribution System Operators (DSO) and gas Suppliers supplying households with yearly-reading meters.
The benefit of the bath-curve is threefold:
- it enables Suppliers and DSO to forecast the day-after-day energy consumption and hence their revenues;
- it allows them to purchase the gas on the energy market (DSO can endorse the role of a social Supplier);
it serves as a reference for the allocation of the yearly-metered gas consumption, helping them to correctly calculate their invoices.
Origin of the bath-curve: the SLP as a reference
Suppliers and DSO obtain this bath-curve from data called Synthetic Load Profile (SLP). A SLP gives a view on the standard hourly consumption during one particular year for a particular consumption profile. There exist different SLP's, in function of the type of consumer (e.g. residential vs professional). The SLP S41 reflects the most common consumption profiles for yearly-metered gas consumers. Synergrid releases yearly the SLP values, ex ante, as it evolves in function of parameters like the school holidays, weekends, sunrise and sunset or the historical weather conditions .
When the weather varies from the seasonal averages, it can have a significant impact on households' gas bills. In this context, Sia Partners has built a S41 bath-curve model to estimate the effects of the 2013-2014 mild winter on the Belgian households' gas bills. Data about the 2012-2013 winter were gathered to have a comparative view on a harsh winter.
Identification of the weather impact on the gas consumption
Based on the S41 profile for the years 2012, 2013 and 2014, Sia Partners has modeled the expected consumption curves for those years. A SLP is an ex ante view on the consumption. To get a view on the most likely consumption for a typical residential gas profile, one needs to correct the S41 profile with the Climate Correction Factor (CCF), a data published by Indexis (Belgian company in charge of the metering activities for DSO ORES and Eandis) . It measures the impact of the weather on the consumption for a specific hour, based on the Degree-Days published by Synergrid . When associated to the corresponding S41 data, it gives a view on the most likely realized consumption of a residential gas consumer.
With the available SLP and CCF data, Sia Partners has modeled the impact of the December 2013 to March 2014 temperatures on the gas consumption, in comparison with the same period one year ago.
The illustration shows two things:
- the 2012-2013 consumptions were above the expected ones - the grey curve is 100 days above the average residential gas consumption curve;
- the 2013-2014 consumptions were below the expected ones - the orange curve is 108 days below the the average residential gas consumption curve.
Compared to the gas consumptions observed during the same period last year, Sia Partners estimates that the consumptions during the December 2013 to March 2014 period went down by 15% (error margin 1%).
Identified savings for Belgian households
To identify the impact on Belgian households' gas bills, Sia Partners has monitored thesupply, network and taxes costs, among others for the residential gas market . Gas bills integrate variable and fixed costs. For example, the rent of the gas-meter is a fixed cost that does not evolve in function of the consumption but in function of the supply period. On the contrary, the commodity costs evolve in function of the consumption. Based on a Belgian market shares-weighted average of the supply prices, a total variable cost (supply, network and taxes integrated) of 60,5€/MWh, applicable for the S41 consumption profile, has been calculated (March supply prices).
The results modeled by Sia Partners show that eachhousehold has saved between 140€ and 270€, for consumptions varying from 15.000 kWh to 30.000 kWh, due to the mild winter, compared to the December 2012 to March 2013 period. A typical household of four people, using gas for the heating and warm water, that normally consumes 23.260 kWh, will spare about 210€.
Consumers, Suppliers and DSO's constraints
From the consumers' perspective, they cannot expect to significantly reduce their gas bills by waiting for the milder winters. On the long term, the weather effect is mitigated by the successive warmer and colder seasons. Adopting a behavior in favor of the rationale use of energy presents much more potential to reduce the energy bill. For example, reducing the temperature by 1° can lead to a gas consumption decrease of 7%. Changing an old heating installation can easily lead to a yearly cost reduction of about 200€, for a 10 years recovery period .
From the Suppliers and DSO perspectives, the impact of varying weather conditions can be harmful. Suppliers are requested to balance the energy they sell to customers with the energy they purchase . If the weather varies from the forecasts, they have to endorse imbalance penalty fees charged by Fluxys, through the market-based balancing mechanism. The forecasting process is therefore crucial for the anticipation of the weather variations.
DSO face another constraint: they need to recover their costs through the regulated distribution tariffs that are fixed for the period 2012-2014. Those tariffs were defined based on forecasted consumptions. In Wallonia, the financial regulatory balance for gas consumptions between 2008 and 2014 would be equal to -80 mio €, according to the CWaPE evaluations . This means that DSO could not recover their whole regulated costs during this period. Moreover, this figure does not take into account the impact of the 2013 and 2014 weather conditions (+6% consumption in 2013; -20% in January 2014) . Neither does it take into account the future financial costs (cost of capital) associated to the recovery of the past regulatory balance (potentially spread between 2015 and 2021). In Flanders, the regulatory balance for gas is positive, which is positive for the consumers.
Finally, Regulators should also monitor and anticipate OLO interest rates. Those impact the financial costs related the past regulatory balance that will need to be recovered through the future tariffs.
View on the fuel oil consumption during the winter 13-14
The Belgian Federation of Fuel Suppliers recently announced that Belgian households have on average ordered 1.150 L less fuel oil than last year (2.900L) during the same winter period . This would have resulted into a decrease of 900€ for the consumers, based on an average yearly consumption between 2.000 and 2.500 L of fuel oil. Does this 40% reduction of fuel oil consumption during this winter mean that this heating source is more economical than gas? Information about consumption patterns, price evolution, average yearly bill and the penetration level of both fuels give an insight on the matter.
The consumption pattern of fuel oil differs significantly from the consumption of gas. To consume fuel oil, a consumer has to fill in its tank and pays its consumption on beforehand. As a result, when households expect lower needs, e.g. due to the mild weather, they will not necessarily fill in their tank. For natural gas, it is different. Consumers generally pay their energy after their consumption. It means that they always buy the real consumption they consumed. In order to have a real view on the fuel oil consumption during the last winters, all the oil still available in the consumers' tank should be quantified.
Concerning the price evolution, the evolution of the average fuel oil prices over the lastyears, based on the Federal Public Service Economy , followed an important prices decrease after the beginning of the crisis in 2008. Maximum fuel oil prices have constantly followed an upwards trend, gaining 75% between February 2014 and April 2009. Between 2007 and 2013, the total gas prices increased with about 35%, according to the CREG . The difference evolutions of gas prices and fuel oil prices over the last years is partly due to the decoupling of the gas prices with the oil prices. In the future, stable gas prices can be expected while oil prices are unclear, although an important decrease is very unlikely.
Concerning the average yearly bill, the FPS Economy indicates an average maximum fuel oil price (winter 2013-2014) at about 0,85€/L (incl VAT) . With an average yearly consumption of 2.000 L, a yearly bill at about 1.700€ can be assessed. For gas, the yearly consumption is estimated by the CREG at about 23.260 kWh per year, for a family of four, or about 1530€ (March 2014 prices).
Finally, the penetration levels of both heating fuels show the higher use of gas by Belgian households. About 55% of the Belgian households heat their dwelling with gas whereas about 33% of the households use fuel oil for the same purpose . In general, households tend to use gas when they are connected to the gas network.
Those elements seem to argue that fuel oil as a heating source does not prove to be more economical than gas.
Jérôme Calderan - Sia Partners
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